SaaS Model Proven? Time to Focus on Revenue?

We’ve seen some fantastic figures in the last month or so that would seem to announce once and for all the validation of the SaaS model and by extension Cloud Computing. To quickly recap;

• Xero achieved 33% increase in aid customer numbers in 50 days
• FreshBooks crossed the 700,000 user mark
• Mint adds 3000 users a day, jumping 250000 users in a matter of months
• Quicken Online adds 45000 users a week since January

Even some of the old boys of analysis, more usually seen limbering up to the big enterprise software vendors, are proclaiming the ascendency of SaaS. Recently Sauagtuck predicted an increase in the uptake of SaaS within finance departments specifically that SaaS will “begin to replace many core and non-core legacy Finance applications currently in use, effectively displacing some leading on-premise Finance and business applications in large and small enterprises” (the rationale being that SaaS offers customers the ability to continue to innovate at a substantially lower absolute cost of entry and ongoing TCO, during a period of intense capital spending constraint – but read it for yourselves – it’s good).

We’re also seeing some great predictions of an upside for SaaS from the current economic downturn. Over on SaaStream there is a good post summarizing the benefits that businesses will realise with a move to SaaS while on VentureBlog there is a bit of a plaintive wail for the health and well being of enterprise software (at least in its on-demand guise).

The education sector would appear to be another success market for SaaS. Jeff posted recently about a recent survey that found that within K-12 education, and when talking to IT professionals, 47%  of the respondents are using at least one SaaS application.

Of course none of this positivity could exist without a dissenting view and Jon Collins from FreeForm Dynamics is happy to fill this role. In fairness one can claim Jon is being a realist but probably not a pessimist. His presentation brings a healthy dose of reality to the discussion around how widespread the adoption of cloud computing and the like is. Slide seven in particular is a somewhat sobering view of the reality of adoption at an aggregate level.

Despite Jon’s well thought out and argued presentation however the bottom line, both in the previous analyses and even in Jon’s mind seems to be that, despite the level of adoption still being less than we’d all like, there is a certain inevitability about the eventual ascendency of cloud computing.

All this net good feeling for The Cloud as a model must possibly, surely, hopefully provide a final validation of the product and, if it does, could we perhaps be seeing the beginning of the move to sane and viable pricing strategies for SaaS companies? It seems like perfect timing – the economic collapse we’re facing, and the flow on freeze on venture capital funding, combined with the indications that Cloud delivery is becoming more accepted by the mainstream, all points in the direction of paradigm shift in terms of charging.

If the recent SaaS successes translate into widespread adoption of the SaaS model, perhaps the days of giving your product away in the (often forlorn) hope that its translate into some downstream revenue will be over. I certainly hope so. Now I’m not saying that freemium as a model is flawed, rather I’m saying that vendors with no monetisation strategy other than the somewhat ethereal concept “that users will equal revenue at some point” will fall by the wayside.

Much of the rationale for non-monetised SaaS models would seem to be to lubricate the on-ramp for new customers. A significant factor in customers reluctance to utilise a product is not related to their concerns about the product itself, but more some kind of subconscious concern over the on-demand model the sort of “is my data safe? what if the interwebs go down? what about backups/security?” sort of issues that traditional vendors seem to roll out at every opportunity.

I for one am predicting that we’ll see some big changes in SaaS pricing in the next 12-18 months.